While flipping through an issue of Harvard Business Review recently, one piece in particular immediately sparked my interest. It resounded for the performance-based online marketing industry, yet actually had little to do with it. The title of the article was something along the lines of "The Fatal Flaw of Pay for Performance." I immediately devoured the article. Although it wasn't about online marketing, it was fascinating and perfectly applicable.
One of the main points addressed in the piece, which I felt was perfectly appropriate for our industry, is that when people (or in our case publishers and affiliate marketers, versus the CEOs discussed in the article) are rewarded for performance only, there is a fatal flaw: the temptation to cheat. We open the system up for fraudulent activity because the person or company responsible for performing at a certain level is so desperate to meet that benchmark that they loose site of the bigger picture.
The article listed examples of CEOs who had "cooked" the books. But it prompted me to recall rampant fraudulent leads I've seen over the years - affiliates forging applications, entering fake emails, even using stolen credit cards - all with the intent to be paid for performance.
The bottom line is, however appealing pay for performance is for advertisers, if not properly regulated, this model is flawed. You don't want a CEO to be rewarded for something he or she didn't really do. Nor do we in the performance-based marketing industry want to reward someone for performance they didn't achieve.
The model shouldn't be just pay for performance, but rather pay for performance with integrity. Let's be honest though, there are too many affiliates and publishers to cut out all of the shady guys. So, how do we solve this dilemma? The first step is to be aware of the issue, and then monitor, regulate, and participate.
Once you've recognized the existing threat, it's important to monitor your affiliates and the manner with which they generate leads. Have a task force assigned to not just monitoring, but identifying and then terminating the relationship if the publisher or affiliate is seen to be doing anything out of the ordinary. It's also crucial to regulate affiliates and publishers. Finally, participate in removing questionable affiliates and publishers from your roster of partners.
Reading that article in HBR ultimately reminded me that pay for performance is flawed - a dilemma that echoes across all industries. For those of us in performance-based online marking, particularly affiliate marketing, it should be clear that pay for performance with integrity is always better, and therein lies the differentiating factor for the best networks.